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All Eyes on Apple at CES

By Rob Enderle
Jan 10, 2005 5:00 AM PT

As I was working up my impressions of the Consumer Electronics Show (CES) in Las Vegas last week, one thing became painfully clear: The most important vendor, from the standpoint of interest, wasn't even there.

All Eyes on Apple at CES

Not since the beginning of the PC era has Apple had this much attention. While much of the attention focused on iPod accessories, it was also clear that a number of large, branded vendors now would desperately like to put Apple out of business. And it often seems that Apple is doing its best to help them.

Upsetting the Channel

CES is a show for retailers looking for products to buy, and increasingly they are seeing products that appear to be as good as the iPod -- even based on the same Portal Player technology -- for more aggressive prices. That wouldn't matter to most retailers as long as they viewed Apple as a legitimate partner. But Apple, through its own screw-ups, has created the impression that it favors its own stores over these retailers. As a result, the retailers are mad.

A large group of them has filed legal action against the company, but even those that haven't are hoping that their days of dealing with a company they feel is cheating them out of profits are numbered. I don't recall any other vendor upsetting its sales partners so much, and I doubt these feelings will go away anytime soon.

Upsetting Its Fans

Also this week, Apple started the litigation process against an Apple fan site that linked to another Web site that had outed some of Apple's upcoming products. This is amazing on two fronts: First, suing your fans is never a good idea. Second, by suing, Apple verified what previously had been just a rumor, therefore further damaging itself.

Being sued by the folks that sell your stuff and suing the folks that promote it seems a little bit whacked. Apple's competitors couldn't be more ecstatic with this turn of events.

Maybe Steve Jobs felt that he had such a strong lead he needed to handicap the race to make it more competitive.

Competitive Response

In a late change to his CES keynote, Bill Gates called on Sony to partner with Microsoft for the sole purpose of taking down Apple as market leader. Sony and Microsoft compete against each other as often as they cooperate, and they have never been terribly close. The combination of Microsoft's infrastructure with Sony's hardware designs, however, is a scary prospect to a lot of folks in the CE space, and no one should be more frightened than Apple.

As I walked around the show and talked to an incredible number of vendors and professional buyers, it became clear that most now think Apple is vulnerable, and they will be making their product and purchase decisions accordingly.

Apple's $500 Headless PC

Part of the news surrounding Apple is the now validated rumor that it will bring out, along with a Microsoft Office-like product, a low-cost PC. This could go one of two ways. If it is a media hub -- a product focusing on managing media for the home, similar to what HP announced at CES -- Apple could have a winner. Apple does user interfaces incredibly well, and currently the best UI is the Digeo offering from Moxie (a Paul Allen company). Apple has the potential to improve on this Emmy-winning interface, and the market is clearly interested in a $500 media hub, particularly if it works well with the iPod family of products.

Apple, however, seems to be in a self-destructive mode. If that pattern holds, and this turns out to be a general purpose PC, Apple will simply be repeating the mistake that Sony made a couple of years ago when it brought out cheap PCs. This experience was recalled last week when I had dinner with Sony execs and we reminisced about the near collapse of their PC division around products that were not up to typical Sony standards. When you establish a Porsche-like brand, you don't want to repeat the VW 914 mistake. The impact on your revenue is painful, and you look stupid, because so many before you have made the same mistake.

CES in Depth

I'll cover CES in more depth next week, but I do want to mention the dichotomy I noticed between those who understand the CE market and those that still think they are selling technology to IT professionals. Those that get the market have improved the ease of installation and user interface, while those that don't have aggressive prices on products most of us couldn't figure out how to use or install if our lives depended on it.

And there was one big surprise at the show. Transmeta, long thought to be the technology leader for mobile x86 products, announced that it is adopting a technology licensing model. Whoever licenses the technology -- or buys the company -- could become a king maker. Speculation seems to surround Intel, Samsung and Microsoft. Intel and Microsoft are on IP acquisition tracks, and both would like to deny this technology to others -- Intel to other chip makers, and Microsoft to Linux. (Transmeta's technology has always had a strong but underutilized Linux advantage because of its connection to Linus Torvalds.) Samsung is an up-and-coming industry power that has been partnering and executing very well of late.

Next week I will provide a better view of the goodies you'll see in the fourth quarter of next year. Now all eyes turn to the Macworld conference next week to see if Steve is going to pull a rabbit or a moose head out of the hat. A large number of former Apple supporters are rooting for the moose.

Rob Enderle, a TechNewsWorld columnist, is the Principal Analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.

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